Delta Two's 10.6 billion-pound ($22.1 billion) bid withdrawal -- the second failed takeover attempt for Sainsbury in less than seven months -- was blamed on worsening credit markets and the cost of winning support from the firm's pension trustee.

"They were basically quibbling over half a billion of funding, which in a total size of $10.5 billion is not all that much. The Street certainly thought there was good chance (the takeover) was going to happen," the trader said.

Strategists at Royal Bank of Scotland said in a note to clients, "it seems highly unlikely that any other bidder will emerge, the only possibility being the Qataris' return in a few months with a revised bid once credit markets settle down".

The iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 359 basis points, according to data from Markit, 13.5 basis points wider versus Friday's close.

"Despite hopes that the worst is already behind us (which triggered the September rally), the subprime carousel continues to go round, while it even accelerates," credit researchers at UniCredit (HVB) wrote in a note to clients.

Adding fuel to the fire was Charles Prince's resignation as Citigroup's chairman and chief executive officer.

Elsewhere, CDS on ITV rose 12.5 basis points to 76.5 basis points, a second trader said, after a weekend newspaper report said that private equity firm Apax was eyeing a potential offer for the British television broadcaster.

The Financial Mail on Sunday said that Apax was considering an offer for ITV together with other private equity firms.

In the cash bond market the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 74.1 basis points more than similarly-dated government bonds, 0.6 basis points less on the day.